If you are employed and are thinking of withdrawing your Employees Provident Fund (EPF) money and investing it in mutual funds for better returns, then read this news first. Employees’ Provident Fund Organization (EPFO) has clearly advised that EPF and mutual funds should not be considered alternatives to each other. The organization says that EPF should always remain the foundation of retirement planning, while mutual funds should only be seen as an additional investment option.
EPFO shared an awareness message on social media platform Along with this, the organization also released a video, in which the difference between EPF and mutual fund has been explained.
The purpose of EPF and mutual fund is different
According to EPFO, EPF is a statutory social security scheme, which has been designed to provide financial security to employees after retirement. In contrast, a mutual fund is a market-linked investment option whose main objective is to create wealth over the long term. In this, the returns depend on the market movements and there is also a risk of fluctuations in it. This is why it is not right to compare both the schemes or consider one as an alternative to the other.
You get double benefit in EPF
The biggest feature of EPF is that the employer also contributes along with the employee. This creates a larger retirement fund over time. On the other hand, only the investor invests money in mutual funds.
Apart from this, the interest rate on EPF is decided by the government every year, which provides relatively stable and reliable returns. Due to automatic deduction from salary every month, the habit of regular savings also continues.
Benefit of pension and insurance also
EPFO said that EPF is not just a savings scheme. Its eligible members also get the benefits of Employees’ Pension Scheme (EPS) and Employees’ Deposit Linked Insurance Scheme (EDLI).
After retirement, eligible members are entitled to pension for life. At the same time, in case of death of the member, his family can get insurance cover of up to Rs 7 lakh along with pension. This type of social security or insurance facility is not automatically available in mutual funds.
What is EPFO’s advice?
EPFO says that mutual funds can give better returns in the long term, but they also have market risk. Therefore, it is not wise to withdraw EPF money prematurely and invest it in mutual funds just in the hope of higher returns.
The organization has advised employees to maintain their EPF corpus as a strong foundation for retirement planning. Investors who have higher risk appetite can take the help of mutual funds for their additional investments. However, EPFO believes that the importance of EPF is different and special from any other investment option due to features like employer contribution, tax benefits, pension and social security.
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